The markets are only just coming to terms with the likely scale of the
Libor-rigging scandal.

First came denial. It was quite impossible that the world’s key borrowing rate, a device used to set the price of hundreds of trillions of dollars of financial assets, could have been manipulated by the banks responsible for setting it.

Then came anger. It was outrageous to suggest that respectable financial institutions could have engaged in something as grubby as trying to make a quick buck playing around with their borrowing rates.

More recently has come bargaining. Barclays has spent £290m settling US and British investigations into its role in Libor manipulation, while Deutsche Bank and UBS are both reported to have reached deals to cooperate with the authorities in return for leniency.

Despite these efforts, markets are increasingly moving into a state of depression as investors and analysts prepare for the fifth stage of grief, acceptance, amid the realisation that Libor-rigging shows all the signs of becoming the greatest banking scandal of modern times.

On Wednesday, it emerged the authorities in New York and Connecticut had issued subpoenas to seven banks, including Barclays, HSBC and Royal Bank of Scotland, as the attorney generals in the two states launch a joint investigation into Libor manipulation.

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For Barclays, which has already signed a settlement deal with the US Department of Justice and the US Commodities and Futures Trading Commission, the prospect of a new American investigation is a heavy blow.

Analysts at credit rating agency Standard & Poor’s summed up the mood well with a report titled Exceptional Items Are Becoming a Recurring Theme for UK Banks as it assessed the “general unease” that Libor and other scandals have had on their view of British lenders.

“Prolonged political, public and regulatory pressures as a consequence of continued missteps and governance failures could strain our assessment of some UK banks’ business positions,” wrote S&P.

Peter Vinella, a California-based former investment banker turned industry consultant at Berkeley Research Group, has no illusions about the scale of the issue facing the industry.

“This is just the tip of the iceberg. A lot more will be coming out over the next few months,” said Mr Vinella.

Mr Vinella points out that an estimated $5 trillion (£3.2 trillion) of wealth was destroyed in the US in final quarter of 2008 in the wake of the collapse of Lehman Brothers and that any failed business or lost investment could be put down in part to Libor manipulation.

Nomura estimates the average legal claim facing banks found to have rigged Libor could be £4.5bn just to meet the cost of compensating clients with interest rate swaps.

Add in large depositors who could claim they lost out on foregone interest as a result of rate suppression and all the other potential legal cases and you get to figures that very few banks could afford to pay out.

“I have now spent several months watching the story develop and gain momentum and the longer it goes on, the more I feel that we should just put it all down to being a bad experience, not to be repeated, and move on,” said Anthony Peters, a strategist at Swiss-Invest.

However, there are few signs the various authorities around the world investigating Libor manipulation are in such a forgiving mood amid the public and political outcry created by the scandal.

Indeed, fines could in time be replaced by prison sentences as national prosecutors look to bring criminal charges, raising the prospect of several more nervous years for banks and bankers.